What Problem Does the Individual Mandate Solve?

The debate over the constitutionality of the individual mandate has mainly focused on whether the federal government has the right to make every resident of the country to purchase a particular product.

While this is an important question, another vital question has mostly been overlooked. The argument that the individual mandate is constitutional depends on whether it falls within Congress’ power to regulate interstate commerce. The link between the mandate and interstate commerce is the claim – made in Section 1501(a)(2)(A) of the health reform law – that the individual mandate will discourage people from “free riding” – that is, refraining from paying for insurance, then getting health care anyway, and skipping out on the bill, leaving others to pay the cost. It is often difficult for health care providers to avoid providing care to non-paying patients, especially in the case of emergency care. Hospitals are required by federal law to provide emergency care regardless of the ability to pay.

But what if the individual mandate actually doesn’t accomplish that goal? That is, suppose the individual mandate, as written into the law passed by Congress, doesn’t actually apply to most of the people who obtain health care without paying for it?

It turns out that the law actually applies the individual mandate primarily to a group with very small average health expenditures – and exempts those who are responsible for most of the so-called “uncompensated care” delivered by health care providers to uninsured patients.

Uninsured patients may be broadly divided into two groups – those with low income or preexisting conditions, who can’t afford insurance; and those who are generally healthy, have moderate or high incomes, and choose not to obtain insurance. The individual mandate will impact mainly the latter group – a group with very low rates of uncompensated care, and very low consumption of health care at all.

Of the low-income uninsured, most will be either covered by the health reform law’s vast expansion of Medicaid eligibility (thus satisfying the mandate without buying insurance), or exempted from the mandate (if they don’t qualify for Medicaid but face insurance premiums higher than 8% of their income). Those unlawfully present in the United States are also exempt. Individuals with expensive pre-existing conditions will be able to obtain coverage at premiums substantially below their health care expenditures, and thus have a powerful incentive to obtain insurance even without that mandate.

This leaves those with income high enough that their health insurance premium is less than 8% of their income, too high to qualify for Medicaid, and healthy enough that they are likely to find health insurance a bad deal financially. According to data from the government’s Medical Expenditure Panel Survey (MEPS), there were about 17.3 million people in that group in 2008. Once the individual mandate comes into effect in 2014, health insurance will be an even worse deal for this group, since the ban on preexisting condition exclusions that comes into effect at the same time will guarantee that they can buy insurance at favorable prices in the future if their health status changes for the worse.

A “finding” in Section 1501(a)(2)(F) of the law claims this “uncompensated care to the uninsured” amounted to $43 billion in 2008. To what extent is emergency care for those most affected by the mandate responsible for that amount? According to the MEPS data, total emergency care spending for this group is about $1.55 billion. This averages out to about $90 per person – and that is not all “uncompensated.” Some people actually pay their bills. (Non-emergency uncompensated care, which is provided more or less voluntarily, averages about $790 per person for this group; these figures are cited in an amicus brief filed by 215 economists.)

To make up for the $90 in federally mandated costs – some of which is paid by the patients already – Congress says they need to either pay thousands of dollars for “qualified coverage,” or a penalty of nearly $700 a year (or 2.5% of their income, whichever is more).

And it should go without saying – but unfortunately it doesn’t – that the penalty collected by those who remain uninsured will not go to the hospitals who treat them. The money will go directly into the U.S. Treasury, and there will be no mechanism for hospitals or doctors to collect from the federal government when uninsured, non-Medicaid patients don’t pay their bills.

So what problem is the individual mandate actually solving? Clearly not the problem set out by the legislative language in an attempt to relate it to the commerce clause.

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The problem seems to be all those dozens(?) thousands(?)…no…must be millions of young, wealthy, healthy Americans who are sponging off of the health care system. There must multiples of million doing it…why would you further the gutting of the constitution for just a few rich malcreants. Give me a break! I have yet to see posted anywhere, just how many of these people are out there driving up medical costs with their irresponsible behavior. Obama and his socialist ilk would have us believe there are so many rich, healthy deadbeats out there that the government must gut the constitution in order to bring fair and balanced health care to all. Just when the height of his arrogance seems to have peaked, he intends to trample our rights and freedoms further through his cowardly method of weaseling out of the problem he got himself as concerns contraceptives/abortion, i.e. forcing insurance companies (of whom I have no special love) to provide goods and services free of charge. He may have the power (many dictators do) but he neither has the authority nor, and most importantly, the right to force this. If the Obama’s government can play Nazi to the insurance industry, what chance do we common citizens have in holding on to our rights and freedoms.

I am a little perplexed that Forbes magazine would have a problem with individual mandates. The problem that is solves is that it increases revenues for the insurance companies so that healthy people, not just the sick and dying, are covered under their plans. This keeps costs down for the average consumer while raising sufficient premiums to cover all of the required costs of providing health care coverage. It is basic economics. This is an economics magazine, isn’t it?